Rationale

 The ratings factor in Muthoot Finance Limited's (MFL) healthy financial risk profile and the scale-up in its consolidated portfolio, which was largely led by the gold loan business. MFL's gold loan book has more than doubled over the last five years to Rs. 57,531.3 crore as of March 2022 and accounted for about 90% of its consolidated portfolio. The ratings continue to factor in MFL's long track record and its leadership position in the gold loan segment, its established franchise with a pan-India branch network, and its efficient internal controls and monitoring systems. MFL's ability to raise funds from diverse sources and the short-term nature of the gold loans result in a strong liquidity profile. ICRA, however, notes the performance of the non-gold segments, which are of a relatively lower vintage; the sustained good quality growth and earnings performance of these segments would remain a monitorable. Some of the asset segments, namely microfinance (6.8% of the consolidated AUM1 as of March 2022), vehicle finance (0.3%) and affordable housing (2.3%) recorded gross stage 3 (GS3) of 5.1%, 6.6% and 2.1%, respectively, vis-à-vis 3.0% in the gold loan segment as of March 2022 (GS3 at 0.9% in March 2021). ICRA takes note of the sizeable gold loan auctions undertaken by MFL in FY2022 vis-à-vis FY2021 and FY2020, largely on account of the loan origination in Q1 and Q2 FY2021, when gold prices were high. Gold loan auctions undertaken in FY2022 stood at Rs. 5,211 crore vis-à-vis Rs. 171crore in FY2021 (Rs. 579 crore in FY2020). The average portfolio loan-to-value (LTV) moderated to 65% in March 2022 from 73% in September 2021 (65% in December 2020 and 61% in September 2020). The credit costs in the gold loan business, however, remained under control in the past, which supported the consolidated earnings performance (profit after tax (PAT)/average managed assets (AMA)2 in the range of 5.5-6.5% during FY2018 to